Goodwin v. Agassiz
| Decision Date | 27 June 1933 |
| Citation | 283 Mass. 358 |
| Court | United States State Supreme Judicial Court of Massachusetts Supreme Court |
| Parties | HOMER GOODWIN v. RODOLPHE L. AGASSIZ & another. |
November 14, 1932.
Present: RUGG, C.
J., CROSBY, PIERCE FIELD, & LUMMUS, JJ.
Corporation Officers and agents, Purchase of shares by director. Fraud.
Where a director of a mining corporation purchased shares of its stock from a stockholder through a broker on the stock exchange, there being no communication between the director and the stockholder and neither party to the sale knowing the identity of the other, the director was not guilty of actionable wrong entitling the stockholder to maintain a suit in equity for a rescission of the sale, redelivery of the shares or an accounting by the director by reason of the circumstances that, shortly before the sale, geological explorations on the lands of the corporation had been made and had been completed unsuccessfully; that the stockholder having read an article, for the publication of which the director was not responsible, about the termination of such explorations, immediately sold the shares; that the director had had knowledge of a mere opinion previously formed by an expert geologist as to the possible existence of minerals in the region where such lands were located; that the director believed that the theory was meritorious and should be tested and that if there were merit in the theory the price of the corporation's stock in the market would go up; and that he thereupon so purchased the shares in question and many other shares without having disclosed the existence of the theory to the stockholder or to the other stockholders and without having said anything to anybody as to the reasons actuating him, there having been no actual fraud practised by him upon the stockholder in question nor breach of duty owed by the director to the corporation nor harm to it; and a decree dismissing the bill was proper.
Additional reasons for dismissal of the suit above described lay in the facts that the plaintiff stockholder was no novice in such matters was a member of the stock exchange and acted upon his own judgment in selling his shares, without having made inquiries of the director or other officers of the corporation.
BILL IN EQUITY, filed in the Supreme Judicial Court for the county of Suffolk on September 17, 1928, described in the opinion.
The suit was ordered transferred to the Superior Court and there was heard by C. H. Donahue, J. Material findings by the judge are stated in the opinion. By his order, a final decree dismissing the bill was entered. The plaintiff appealed.
W. Powers, (C.
R. Cabot with him,) for the plaintiff.
E. F. McClennen, for the defendant Agassiz.
A stockholder in a corporation seeks in this suit relief for losses suffered by him in selling shares of stock in Cliff Mining Company by way of accounting, rescission of sales, or redelivery of shares. The named defendants are MacNaughton, a resident of Michigan not served or appearing, and Agassiz, a resident of this Commonwealth, the active party defendant.
The trial judge made findings of fact, rulings, and an order dismissing the bill. There is no report of the evidence. The case must be considered on the footing that the findings are true. The facts thus displayed are these: The defendants, in May, 1926 purchased through brokers on the Boston stock exchange seven hundred shares of stock of the Cliff Mining Company which up to that time the plaintiff had owned. Agassiz was president and director and MacNaughton a director and general manager of the company. They had certain knowledge, material as to the value of the stock, which the plaintiff did not have. The plaintiff contends that such purchase in all the circumstances without disclosure to him of that knowledge was a wrong against him. That knowledge was that an experienced geologist had formulated in writing in March, 1926, a theory as to the possible existence of copper deposits under conditions prevailing in the region where the property of the company was located. That region was known as the mineral belt in northern Michigan, where are located mines of several copper mining companies. Another such company, of which the defendants were officers, had made extensive geological surveys of its lands. In consequence of recommendations resulting from that survey, exploration was started on property of the Cliff Mining Company in 1925. That exploration was ended in May, 1926, because completed unsuccessfully, and the equipment was removed. The defendants discussed the geologist's theory shortly after it was formulated. Both felt that the theory had value and should be tested, but they agreed that, before starting to test it, options should be obtained by another copper company of which they were officers on land adjacent to or nearby in the copper belt, that if the geologist's theory were known to the owners of such other land there might be difficulty in securing options, and that that theory should not be communicated to any one unless it became absolutely necessary. Thereafter, options were secured which, if taken up, would involve a large expenditure by the other company. The defendants both thought, also, that, if there was any merit in the geologist's theory, the price of Cliff Mining Company stock in the market would go up. Its stock was quoted and bought and sold on the Boston stock exchange. Pursuant to agreement, they bought many shares of that stock through agents on joint account. The plaintiff first learned of the closing of exploratory operations on property of the Cliff Mining Company from an article in a paper on May 15, 1926, and immediately sold his shares of stock through brokers. It does not appear that the defendants were in any way responsible for the publication of that article. The plaintiff did not know that the purchase was made for the defendants and they did not know that his stock was being bought for them. There was no communication between them touching the subject. The plaintiff would not have sold his stock if he had known of the geologist's theory. The finding is express that the defendants were not guilty of fraud, that they committed no breach of duty owed by them to the Cliff Mining Company, and that that company was not harmed by the nondisclosure of the geologist's theory, or by their purchases of its stock, or by shutting down the exploratory operations.
The contention of the plaintiff is that the purchase of his stock in the company by the defendants without disclosing to him as a stockholder their knowledge of the geologist's theory, their belief that the theory had value, the keeping secret the existence of the theory, discontinuance by the defendants of exploratory operations begun in 1925 on property of the Cliff Mining Company and their plan ultimately to test the value of the theory, constitute actionable wrong for which he as stockholder can recover.
The trial judge ruled that conditions may exist which would make it the duty of an officer of a corporation purchasing its stock from a stockholder to inform him as to knowledge possessed by the buyer and not by the seller, but found, on all the circumstances developed by the trial and set out at some length by him in his decision, that there was no fiduciary relation requiring such disclosure by the defendants to the plaintiff before buying his stock in the manner in which they did.
The question presented is whether the decree dismissing the bill rightly was entered on the facts found.
The directors of a commercial corporation stand in a relation of trust to the corporation and are bound to exercise the strictest good faith in respect to its property and business. Elliott v Baker, 194 Mass. 518 , 523. Beaudette v. Graham, 267 Mass. 7 . L. E. Fosgate Co. v. Boston Market Terminal Co. 275 Mass. 99 , 107. The contention that directors also occupy the position of trustee toward individual stockholders in the corporation is plainly contrary to repeated decisions of this court and...
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